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Inflation is not necessarily due to excessive spending

Yesterday’s data from the Australian Bureau of Statistics (October 28, 2020) – Consumer Price Index, Australia – for the September-quarter 2020, illustrates what a lot of people do not fully grasp. Inflation can be driven by administrative decisions and can be curtailed or restrained by varying those decisions. No tax rises or cuts to government spending are needed. The data also reflect on the reasons that predictions from mainstream (New Keynesian) economic models fail dramatically. Mainstream economists claim that monetary policy (adjusting of interest rates) is an effective way to manage the economic cycle. They claim that central banks can effectively manipulate total spending by adjusting the cost of borrowing to increase output and push up the inflation rate. The empirical experience does not accord with those assertions. Central bankers around the world have been demonstrating how weak monetary policy is in trying to stimulate demand. They have been massively building up their balance sheets through QE to push their inflation rates up without much success. Further, it has been claimed that a sustained period of low interest rates would be inflationary. Well, again the empirical evidence doesn’t support that claim. The Reserve Bank of Australia has now purchased more than $50 billion worth of federal government bonds and a smaller amount of state and territory government debt. And yet inflation is well below the lower bound of the RBA’s inflation targetting range. The most reliable measure of inflationary expectations are flat and below the RBA’s target policy range.

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    Politics in a Podcast – fiscal statements and the pandemic future

    It’s Wednesday and just a few things today while I attend to other things (writing, meetings, etc). I will have an interesting announcement to make in a few weeks (around then) about a project I am working on that I hope have wide interest. Today, we have a podcast I recorded a few weeks ago with the Politics in the Pub, Newcastle group – now, in this coronavirus era being rebadged and reformatted as Politics in a Podcast. And then we celebrate a great musician who died last week but left some memorable songs for us to take into the future.

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      Drain the (corporate) swamp

      Today, I celebrate – my home town of Melbourne has recorded zero new infections for the second time since June 9, 2020 and zero deaths. A consecutive day of double zero. My Melbourne band Pressure Drop is planning a live streamed gig soon – our first time playing since March. Details will come when we know more about when we can do it. Something to celebrate in a bleak year. Today I am writing about the underside of neoliberalism though. Nothing to celebrate about this at all. Revolving doors, corporatisation of public service and introducing the excesses and corruption that is endemic in that private sector, more on that, and a federal government that is refusing to introduce a federal corruption body despite the evidence of widespread malpractice at that level. Why this matters is because to build a better world we need to reverse the demolition of the traditional public service by the neoliberals over several decades, which has turned a once wonderful bureaucracy (departmental structure) from a public service delivery capacity into a contract brokerage for outsourced and deregulated service delivery units, chasing profits in the private sector and cutting as many corners as they can get away with. With lax oversight these days, they can get away with a lot. And when public agencies start behaving as if they are corporations then things really come unstuck. And then we see the alarming necrosis that exists at the top levels of Australian corporations. No wonder we have just had Royal Commissions into the banking and finance sector and into the (privatised) aged care sector which have delivered such shocking results. Nothing to celebrate at all.

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        US claimants recovery stalls

        Today, I celebrate – my home town of Melbourne has recorded zero new infections for the first time since June 9, 2020 and zero deaths. But things are not so hot elsewhere in the world. As the US labour market started to rebound over the summer, I stopped updating my analysis of the claimants data horror story that had earlier demonstrated how sharp the decline in March and April had been. But I have still been monitoring it on a weekly basis and the information we are now getting from the US Department of Labor’s weekly data releases are indicating that as the virus escalates, seemingly out of control, the labour market recovery has all but stalled and a reasonable prediction would be that it will deteriorate somewhat if the infection rate leads to tighter restrictions (which it should). A relatively short blog post today (tied up with things today) – just some notes as I updated the data to see what was going on. The conclusions are obvious. Much more fiscal support is needed in the US, especially targetted at the bottom end of the labour market. Devastation will follow with the sorts of numbers that appear to be entrenched at present.

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          The Weekend Quiz – October 24-25, 2020 – answers and discussion

          Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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            The Weekend Quiz – October 24-25, 2020

            Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.

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              Forget the record deficits and public debt – focus on what the net spending is doing to advance well-being

              Yesterday (October 21, 2020), the British Office of National Statistics (ONS) released the latest – Public sector finances, UK: September 2020 – which, predictably tells us that government borrowing was “£28.4 billion more than in September 2019 and the third-highest borrowing in any month since records began in 1993” and that the public debt ratio has risen to “103.5% of … GDP … this was the highest debt to GDP ratio since … 1960.” Shock horror. While I yawn. The financial media went to town on the data. The Financial Times article (October 22, 2020) – UK government borrowing reaches record in first half of fiscal year – claimed the second wave that is now sweeping the northern hemisphere “have dampened hopes” that the stimulus “could be quickly scaled back” which has “fuelled concerns over the US’s mounting public debt”. It didn’t clarify as to who was concerned or why. The old canards seem to die slowly. Meanwhile, the IMF has changed tack somewhat after its tawdry display during the GFC. Overall, we should be relaxed about the records being set (deficits, public debt) and focus on what the net spending is doing to advance our interests. Focusing on the financial parameters will just divert our attention away from what is important.

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                Video – An economy that guarantees health and wellbeing for all

                Today, on my blog-light day, I have a video of a recent event where I spoke (with other speakers being John Quiggin and Noel Pearson). The event was in conjunction with the Public Health Association of Australia’s annual conference and we are discussing the interface between health and the economy and the right to work and income security. It was an interesting and very civilised discussion. And when you are through watching that, we also have a ‘provocation’ to consider and then some jazz. All the interests of advancing humanity!

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                  Australian labour market continues to go backwards as government sits idly by

                  On Tuesday (October 20, 2020), the ABS released the latest data for – Weekly Payroll Jobs and Wages in Australia, Week ending 3 October 2020 – which gives us the most up-to-date picture of how the labour market is coping with the on-going restrictions. Last week, the ABS released the monthly labour force survey data which covered the period up until September 14. Today’s data gives us an extra two weeks of information to gauge what is happening. It also provides us more accurate estimates of the impact of the harsh Stage 4 restrictions that have been imposed in Victoria to address the Second Wave of the coronavirus. Those restrictions were eased last weekend after the government has brought the outbreak under control. So hopefully, today’s data will signal just about the trough before the slow recovery begins as more activities open up. Overall, payroll employment has fallen by 0.7 points since July 25, 2020, when the lockdowns began in earnest. Unsurprisingly, payroll employment fell in the six-week period ending October 3, 2020 in Victoria by 2.3 points. Employment has also fallen in NSW by 0.7 points over the same period. The Victorian case is about lockdown. NSW is in decline because of failed macroeconomic policy, which goes to the performance of the federal government. The fact that the first recovery period failed to regain the jobs lost was an indicator that the policy intervention was insufficient. The second-wave job losses tell us clearly that more needs to be done by the Federal government. The problem is the federal government is now engaging itself in trivial political point scoring instead of showing economic leadership.

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